Insolvency and restructuring glossary: plain-English definitions
Insolvency law uses many terms that are precise in meaning but unfamiliar to most directors and creditors. This glossary explains 45 of the most common terms in plain English, with the governing provision where one exists.
Administrator
An administrator is a registered liquidator appointed to take control of an insolvent or near-insolvent company. The administrator investigates the company’s affairs and reports to creditors on its future. During the administration the directors’ powers are suspended (Corporations Act 2001 (Cth) s 437A). See our guide to voluntary administration and restructuring.
Bankruptcy
Bankruptcy is the formal process that applies when an individual cannot pay their debts. It starts by a court sequestration order or by the person’s own petition. A trustee takes control of the bankrupt’s divisible property and distributes it among creditors (Bankruptcy Act 1966 (Cth) ss 43, 55). See our guide to personal guarantees and bankruptcy.
Bankruptcy annulment
Annulment cancels a bankruptcy as if it had never occurred. It is available where the debts are paid in full or creditors accept a composition. The court can also annul where the sequestration order should not have been made (Bankruptcy Act 1966 (Cth) ss 74, 153A, 153B). See our guide to bankruptcy annulment.
Bankruptcy notice
A bankruptcy notice is a formal demand served on a judgment debtor who owes at least the statutory minimum. The debtor has 21 days to pay or reach agreement. Failure to comply is an act of bankruptcy that supports a creditor’s petition (Bankruptcy Act 1966 (Cth) ss 40(1)(g), 41). See our guide to debt recovery.
Circulating security interest
A circulating security interest is a security over assets that the company may deal with in the ordinary course of business. Examples include inventory and book debts. It replaced the old floating charge. Employee entitlements rank ahead of a circulating security interest on liquidation or receivership (Corporations Act 2001 (Cth) ss 51C, 433, 561). See our guide to PPSR and retention of title.
Committee of inspection
A committee of inspection is a small group of creditors appointed to advise and assist an external administrator. The committee can approve the administrator’s remuneration and some decisions. It may also request information about the administration (Insolvency Practice Schedule (Corporations) Div 80). See our guide to liquidator claims.
Creditor-defeating disposition
A creditor-defeating disposition is a transfer of company property for less than its market value that prevents or hinders the property reaching creditors. Such transfers are a feature of illegal phoenix activity. A liquidator or ASIC can recover the property (Corporations Act 2001 (Cth) ss 588FDB, 588FE(6B)). See our guide to liquidator claims.
Creditors’ voluntary liquidation
A creditors’ voluntary liquidation is a winding up begun by the company’s members when the company is insolvent. No court application is required. The shareholders pass a special resolution and appoint a liquidator, and creditors may replace that liquidator (Corporations Act 2001 (Cth) ss 491, 497). See our guide to winding-up applications.
Debtor’s petition
A debtor’s petition is the document an individual lodges to make themselves bankrupt voluntarily. The petition is presented to the Official Receiver rather than a court. Bankruptcy begins when the petition is accepted (Bankruptcy Act 1966 (Cth) s 55). See our guide to personal guarantees and bankruptcy.
Deed of company arrangement (DOCA)
A DOCA is a binding agreement between a company and its creditors made at the end of a voluntary administration. It sets out how the company’s affairs will be dealt with, often by a creditors’ fund paid over time. A DOCA binds all unsecured creditors once approved (Corporations Act 2001 (Cth) ss 444A, 444D). See our guide to voluntary administration and restructuring.
Director identification number
A director identification number is a unique 15-digit identifier that every company director must hold. It is issued once and follows the director for life. Acting as a director without one is an offence (Corporations Act 2001 (Cth) s 1272C). See our guide to directors’ duties and personal liability.
Director penalty notice (DPN)
A DPN is a notice from the ATO making a director personally liable for the company’s unpaid PAYG withholding, superannuation guarantee charge or GST. The director has 21 days from the notice date to act before the ATO sues (Taxation Administration Act 1953 (Cth) Sch 1, Div 269). See our guide to director penalty notices.
Discharge from bankruptcy
Discharge is the automatic release of a bankrupt from most debts. It usually occurs three years and one day after the statement of affairs is filed. The trustee can object to discharge and extend the bankruptcy for non-compliance (Bankruptcy Act 1966 (Cth) ss 149, 149B). See our guide to personal guarantees and bankruptcy.
Disclaimer of onerous property
Disclaimer lets a liquidator or trustee in bankruptcy give up property that is a burden rather than a benefit. Examples include unprofitable leases, contaminated land and contracts that cannot be performed. A person who loses out can lodge a proof of debt (Corporations Act 2001 (Cth) s 568; Bankruptcy Act 1966 (Cth) s 133). See our guide to liquidator claims.
Examination (public examination)
A public examination is a court hearing at which a liquidator or other eligible applicant questions a person under oath. Directors and officers can be summoned about the company’s affairs. Other people may be examined where they can give relevant information (Corporations Act 2001 (Cth) ss 596A, 596B). See our guide to liquidator claims.
Freezing order
A freezing order is a court order stopping a party from dealing with or removing assets. Its purpose is to prevent a judgment being frustrated. The applicant must show a good arguable case and a real risk of dissipation. The rules are in court procedure rules (Uniform Civil Procedure Rules 1999 (Qld) r 260A; Federal Court Rules 2011 (Cth) r 7.32). See our guide to freezing orders and asset recovery.
General security agreement
A general security agreement is a contract granting a lender a security interest over all of a company’s present and future property. It replaced the fixed and floating charge. The lender must register the interest on the PPSR to protect its priority (Personal Property Securities Act 2009 (Cth) ss 12, 21). See our guide to PPSR and retention of title.
Insolvency (cash-flow test)
A company or person is insolvent when they cannot pay all their debts as and when they become due and payable. This is a cash-flow test, not a balance-sheet test. Courts look at the whole commercial position, including realistic access to funds (Corporations Act 2001 (Cth) s 95A). See our guide to insolvent trading.
Insolvent trading
Insolvent trading occurs when a director allows an insolvent company to incur a debt. There must be reasonable grounds to suspect the insolvency. The director can be personally liable to compensate the company for the loss (Corporations Act 2001 (Cth) ss 588G, 588M). See our guide to insolvent trading.
Ipso facto stay
The ipso facto stay stops a counterparty from terminating or varying a contract only because the company has entered a formal restructuring process. It applies in voluntary administration, schemes of arrangement and some receiverships. Contracts made before 1 July 2018 are not covered (Corporations Act 2001 (Cth) ss 415D, 434J, 451E). See our guide to voluntary administration and restructuring.
Liquidator (registered liquidator)
A liquidator is the person appointed to wind up a company, realise its assets and distribute the proceeds to creditors. Only a registered liquidator can accept most appointments. Registration is granted by a committee convened by ASIC (Insolvency Practice Schedule (Corporations) Div 20). See our guide to liquidator claims.
Litigation funding
Litigation funding is an arrangement where a third party pays the costs of a claim in return for a share of any recovery. Liquidators often use funding to pursue voidable transaction and insolvent trading claims. Court approval is needed for funding agreements lasting more than three months (Corporations Act 2001 (Cth) s 477(2B)). See our guide to litigation funding.
Lockdown DPN
A lockdown DPN is a director penalty notice issued where the company failed to lodge its returns within three months of the due date. Unlike a standard DPN, placing the company into administration or liquidation does not remit the penalty. Only payment will (Taxation Administration Act 1953 (Cth) Sch 1 s 269-30). See our guide to director penalty notices.
Members’ voluntary liquidation
A members’ voluntary liquidation is the winding up of a solvent company by its shareholders. The directors must first make a written declaration of solvency. The company’s assets are realised and surplus funds returned to members (Corporations Act 2001 (Cth) ss 491, 494). See our guide to shareholder disputes.
PMSI (purchase money security interest)
A PMSI is a security interest held by a seller or financier over goods they supplied or funded. Common examples are retention of title supplies and equipment finance. A properly registered PMSI has priority over earlier general security interests in the same goods (Personal Property Securities Act 2009 (Cth) ss 14, 62). See our guide to PPSR and retention of title.
PPSR and perfection
The Personal Property Securities Register is the national online register of security interests in personal property. A security interest is “perfected” when it is registered, or the secured party has possession or control. An unperfected interest vests in the company on insolvency (Personal Property Securities Act 2009 (Cth) ss 21, 267). See our guide to PPSR and retention of title.
Proof of debt
A proof of debt is the formal claim a creditor lodges with a liquidator, administrator or trustee to share in any dividend. The administrator may admit or reject it. A creditor can appeal a rejection to the court (Corporations Act 2001 (Cth) s 553; Bankruptcy Act 1966 (Cth) s 82). See our guide to debt recovery.
Provisional liquidator
A provisional liquidator is appointed by the court after a winding-up application is filed but before it is heard. The appointment preserves the company’s assets where there is a risk of dissipation or misconduct. It is an interim and urgent remedy (Corporations Act 2001 (Cth) s 472(2)). See our guide to winding-up applications.
Receiver and manager
A receiver and manager is appointed by a secured creditor, or sometimes the court. They take control of secured property and may carry on the business. The receiver’s primary duty is to the appointing creditor. They must take reasonable care to sell property for market value (Corporations Act 2001 (Cth) ss 420, 420A). See our guide to receivership.
Relation-back day
The relation-back day is the date from which the time limits for voidable transactions are counted backwards. It is usually the day the winding-up application was filed or the administration began. Unfair preferences within six months before this day can be recovered (Corporations Act 2001 (Cth) ss 91, 588FE). See our guide to unfair preference claims.
Retention of title
A retention of title clause lets a supplier keep ownership of goods until the buyer pays. Under the PPSA the clause is a security interest and must be registered to be effective in an insolvency. An unregistered clause usually fails against a liquidator (Personal Property Securities Act 2009 (Cth) s 12(2)(d)). See our guide to PPSR and retention of title.
Running account
A running account is a continuing business relationship where payments and new supply flow back and forth. Where one exists, a preference claim is assessed on the net reduction in debt over the period, not each payment separately. This can greatly reduce a creditor’s exposure (Corporations Act 2001 (Cth) s 588FA(3)). See our guide to unfair preference claims.
Safe harbour
Safe harbour protects directors from insolvent trading liability while they pursue a restructuring plan. The plan must be reasonably likely to produce a better outcome than immediate administration or liquidation. Employee entitlements and tax lodgements must be kept up to date (Corporations Act 2001 (Cth) s 588GA). See our guide to safe harbour for directors.
Scheme of arrangement
A scheme of arrangement is a court-approved compromise between a company and its creditors or members. It binds all affected parties if approved by the required majorities and the court. Schemes are used for large restructures and takeovers (Corporations Act 2001 (Cth) s 411). See our guide to voluntary administration and restructuring.
Security for costs
Security for costs is a court order requiring a plaintiff to put up money or a guarantee for the defendant’s costs. It is often sought against companies that appear unable to pay costs. The court has a wide discretion (Corporations Act 2001 (Cth) s 1335; Uniform Civil Procedure Rules 1999 (Qld) r 670). See our guide to commercial disputes.
Sequestration order
A sequestration order is the court order that makes an individual bankrupt on a creditor’s petition. The creditor must prove a debt of at least the statutory minimum. It must also prove an act of bankruptcy within the last six months (Bankruptcy Act 1966 (Cth) s 43). See our guide to personal guarantees and bankruptcy.
Small business restructuring
Small business restructuring is a simplified process for companies with liabilities under $1 million. The directors stay in control while a restructuring practitioner helps prepare a plan for creditors. Creditors vote on the plan without a formal meeting (Corporations Act 2001 (Cth) Pt 5.3B). See our guide to voluntary administration and restructuring.
Statutory demand
A statutory demand is a formal written demand for a debt of at least $4,000 served on a company. The company has 21 days to pay, secure the debt or apply to set the demand aside. Failure to comply creates a presumption of insolvency (Corporations Act 2001 (Cth) ss 459C, 459E, 459G). See our guide to statutory demands.
Trustee in bankruptcy
A trustee in bankruptcy is the registered trustee, or the Official Trustee, in whom a bankrupt’s divisible property vests. The trustee investigates the bankrupt’s affairs, recovers assets and pays dividends to creditors (Bankruptcy Act 1966 (Cth) ss 19, 58). See our guide to personal guarantees and bankruptcy.
Uncommercial transaction
An uncommercial transaction is one a reasonable person in the company’s position would not have entered. The test weighs the benefits and detriment to the company. If made while insolvent within two years before the relation-back day, a liquidator can unwind it (Corporations Act 2001 (Cth) s 588FB). See our guide to liquidator claims.
Unfair preference
An unfair preference is a payment or other benefit a creditor received from an insolvent company. The creditor must have received more than it would get in the liquidation. A liquidator can claw back preferences received within six months before the relation-back day (Corporations Act 2001 (Cth) s 588FA). See our guide to unfair preference claims.
Unreasonable director-related transaction
An unreasonable director-related transaction is a payment or transfer to a director or their associate that a reasonable company would not have made. A liquidator can recover it if made within four years before the relation-back day. Solvency at the time is no defence (Corporations Act 2001 (Cth) s 588FDA). See our guide to breach of fiduciary duties.
Voidable transaction
A voidable transaction is a transaction entered into before liquidation that the court can set aside on a liquidator’s application. The categories include unfair preferences, uncommercial transactions, unfair loans and creditor-defeating dispositions. The court can order repayment or return of property (Corporations Act 2001 (Cth) ss 588FE, 588FF). See our guide to liquidator claims.
Voluntary administration
Voluntary administration is a process in which an independent administrator takes control of an insolvent company to give it breathing space. Creditors then decide the company’s future. The options are a deed of company arrangement, a return to the directors, or liquidation (Corporations Act 2001 (Cth) Pt 5.3A, s 435A). See our guide to voluntary administration and restructuring.
Winding-up application
A winding-up application is a court application, usually by a creditor, to have a company wound up in insolvency. The court appoints a liquidator if the order is made. The most common ground is failure to comply with a statutory demand (Corporations Act 2001 (Cth) ss 459A, 459P). See our guide to winding-up applications.
This glossary is general information only and is not legal advice. The law is stated as at October 2026.
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